The Danish Green Certificate System: Some simple analytical results

We formulate a simple static equilibrium model for the electricity market taking account of both Green Certificates and CO2-emission permits. The objective is to investigate the relationship between these markets under the existence of upper and lower price-bounds on the Green certificates, both in the short and in the long run. We perform various comparative static changes of the parameters of the model and study how these affect the endogenous variables of the model as well as producers' and consumers' surplus. We also investigate the effects of imports and exports of electricity. Several comparative static results are derived and in particular it is shown that harsher CO2-emission constraints and increased import wholesale price both may lead to reduced capacity of "green electricity".